Worley Limited (WOR) Earnings Call Transcript & Summary

Thank you for standing by. Welcome to Worley Full Year 2023 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to your first speaker today, Mr. Chris Ashton, Chief Executive Officer. Thank you, sir. Please go ahead.

Welcome, everyone, and thanks for joining Worley's full year results for FY '23. I'm pleased to be presenting these today with Tiernan O'Rourke, our CFO. Just moving on to Slide 2. And before I begin, I'd like to acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the land on which we meet today. We acknowledge and recognize their continued connection to the land and waters and thank them for protecting this coastline and its ecosystem since time immemorial and for their unique ability to care for country and their deep spiritual connection to it. We pay our respects to the elders past and present and extend that respect to all First Nations people present today whose knowledge and wisdom has ensured the continuation of culture and traditional practices. Moving on to Slide 3. I'll just remind you to review the disclaimer that's shown here. And we'll move on to Slide 4. In terms of the agenda for today, first, I'll provide an overview of our business performance and strategic progress over the year as we move further toward achieving our ambition. And then Tiernan will add additional detail on our full year results. And finally, I'll provide a market update, and we'll look at where the business is going for the rest of FY '24 before opening up for Q&A. Just moving on to Slide 5. Today, I want to leave you with 3 key messages. First, we've delivered strong growth and momentum continues to build. We continue to deliver in line with that which we said we would. Second, we continue to execute our strategy and have a clear path to increasing revenue, earnings and margins in the near and medium term. And finally, as a global leader and trusted provider of sustainability solutions, we're leveraging our differentiated position to deliver long-term value. Moving on to Slide 6. What I'm going to do now is take you through our business performance, which will illustrate the progress we're making against our strategy, and that will begin on Slide 7. Keeping our people safe and well remains our highest priority, and we continue to enhance the way we work. And this year, we've embedded psychosocial factors into our Life programs. Our safety performance remains a focus, and our total recordable case frequency rate has reduced from 0.14 -- to 0.14 from 0.16 last year. We want our people to be energized and empowered, and we're building a values inspired culture that amplifies big picture thinking is open to possibility and demonstrates collaboration and innovation. We're developing our people through skills and capability building and our new learning at Worley platform launched in February this year is providing flexible learning and development opportunities for our people. Moving to Slide 8. We're driving progress across our sustainability programs and continued to enhance our ESG governance and reporting framework. We're focused on all aspects of our environmental, social and governance performance. This year, we reduced our Scope 1 and Scope 2 emissions by 14%, contributing to a significant 64% reduction from our FY '20 baseline. We've improved the gender balance of our graduates and our intake in FY '23 is up 48% from 47% last year. Just this week on Monday, 214 graduates started in our India business, 65% who are female. Our Respect at Work program focused holistically on the prevention and response to sexual harassment and harmful behaviors in the workplace. We're pleased with the level of external recognition we're achieving. Our Prime ESG corporate rating by ISS makes our tradable bonds and shares eligible for responsible investment. And our Gold rating with EcoVadis puts us in the top 10% of industry peers. While we're making good progress in meeting our own sustainability goals, our biggest impact lies in helping our customers as they transition to a lower carbon future. Moving on to Slide 9. Our result for FY '23 reflects the strong growth we've delivered as momentum continues to build and customers are bringing more sustainability-related contracts to market. Aggregated revenue grew by 21% compared to the prior corresponding period, and this reflects continued growth in demand for our services as customers look to us to help them develop innovative solutions across their traditional and sustainability-related projects. Our underlying EBITA of $635 million is up 16% on the prior corresponding period, and we've delivered margin excluding procurement of 6.5%, up from 6.4% in the FY '22. And we expect to see further margin improvement in the future. Our statutory NPATA for the year was $104 million, down from $243 million in FY '22, and this result was impacted by the $240 million loss on the sale of the North American turnaround and maintenance business, which includes $231 million of noncash impairments of intangible. The transaction was part of our active portfolio management, which Tiernan will talk about later. Just moving on to the story about our business and how it's growing across both traditional and sustainability-related work. And while our traditional business is and will remain an important part of our future, our sustainability-related work is growing at a faster rate. Sustainability-related revenue grew by 41% to $4.5 billion, up from $3.2 billion in FY '22. It now represents coincidentally 41% of our aggregated revenue. This trend is reflected in our factored sales pipeline where 77% is sustainability-related compared to 56% last year. This is a leading indicator that we're making good progress toward achieving our ambition of deriving 75% of our revenue from sustainability-related work by FY '26. Moving on to the next slide. We've transformed as a business and through the disciplined and focused execution of our strategy, we've consistently delivered improved key metrics over the past 4 reporting periods. Our early mover advantage in sustainability is providing us access to new and growing markets. We're seeing an increased demand for our services, and we've grown at a faster rate than the broader ECR market. We achieved double-digit annualized earnings growth in our EBITA, which further demonstrates we're delivering on our strategy. Our strategic investment in growth areas is delivering accretive returns. We've seen opportunities in our factored sales pipeline translate into backlog and then into revenue. And this year, the process has added over $1.8 billion to our backlog. We're focused on margin growth. We've delivered what we said we would this year, achieving an EBITA margin excluding procurement of 6.5%. Our capital management position has improved over the year. We've restructured our syndicated bank facility, securing improved terms and pricing and extending our debt maturity profile. We successfully issued our second sustainability-linked bond for $350 million, and our cash conversion is 86.6% on a pro forma basis, and this is within our target range. Of course, we're going to continue our disciplined approach of delivering on our strategy, and I believe we are set up well for future growth. Moving to Slide 11. Our leading indicators give us confidence of future increased earnings in the near to medium term. Our factored sales pipeline continues to grow and is up 46% on the prior corresponding period. Our rolling 12-month bookings indicates our project wins are trending upward for both traditional and sustainability work. We're now seeing our backlog grow by 14% across the year on a pro forma basis. We've recently announced a significant win with Venture Global. A limited early scope is currently included in the backlog, and the majority of the project value remains in the factored sales pipeline until after final investment decision is made, that is expected later this year. This is in line with our usual approach. Turning to Slide 12. Our customers look to us as a trusted partner to bring the solutions they need based on our leading position in the markets we serve. We have a long track record of delivering complex integrated projects, which enable the energy transition to move along its trajectory. With our global scale and experience, we're able to deploy resources to support our customers at a time when there is growing demand, which gives us a competitive advantage. Around half of our revenue comes from our top 20 customers. And of that top 20, 85% have net 0 Scope 1 and Scope 2 commitments by 2050 or sooner. The majority of these are long-term customers, and we're supporting them in their transition to a lower carbon future. We are, however, starting to see a change in customer mix with new and emerging customers entering our top 20 by revenue, allowing us to access new pools of sustainability-related investment. Moving to Slide 13. We're seeing continued strong growth across all those regions in which we work. We continue to secure strategic wins across both traditional and sustainability-related markets, particularly across growth areas of our strategic portfolio such as carbon capture, utilization and storage, low-carbon hydrogen, battery materials and low-carbon fuels. The U.S. Inflation Reduction Act and Infrastructure Bill continue to drive investments in the U.S. An example of this is 1PointFive South Texas Hub project, which has been recently awarded a significant federal grant and is an important step in the scaling up of direct air capture technology. We continue our relation with 1PointFive. And recently, I was at the groundbreaking ceremony for their first commercial scale direct air capture project in West Texas. We maintain our strong and long-standing relationship with customers. And with Shell, we have just signed an enterprise-wide framework agreement to support their global projects. Moving on to Slide 14. Global energy security concerns are increasing demand for LNG terminals and midstream capacity expansion, which in turn is driving increased capital investment. In May, we announced that we agreed substantive terms for a reimbursable EPC agreement for Venture Global's Calcasieu Pass 2 LNG terminal in Louisiana. Construction of phase 1 will focus on speed-to-market as we deliver the project using a highly modularized approach to enhance construction efficiency as well as safety. This project is important. It opens up an addressable market for us, which was previously been dominated by lump sum turnkey EPC projects, reimbursable EPC aligned with our risk-adjusted commercial models and low risk appetite. This project alone will more than replace the volume of work divested through the North American turnaround and maintenance business, and it's a significant win historically for Worley. With that, I'm going to hand over to Tiernan to take us over some of the more detailed financials.

Thank you, Chris, and good morning, everyone. In my view, our financial results today demonstrate 3 things: one, that we can deliver consistent earnings growth. Two, that margin expansion in FY '23 positions us for further upside in FY '24. And finally, as Chris mentioned, already capital management is now in a very strong position to support this growth. So turning first to Slide 16. Our aggregated revenue of $10.9 billion is up 21% on FY '22. We've seen strong growth in our procurement revenue at margin, reflective of our project mix. And when you exclude procurement revenue, growth is 14% over last year. Importantly, all our regions contributed to this achievement. But looking at group profit, we've delivered an underlying EBITA of $635 million, up 16% on FY '22. And I know Chris has already talked about these numbers, but they're important to reiterate. We've also delivered an underlying EBITA margin, excluding procurement, of 6.5%, which is up marginally on FY '22. Reminding you that included in this margin is the money we spent, $37 million, on strategic investments, which was in line with forecast. There are only 2 one-off items excluded from underlying results this period. First, the shared services transition. This transition project is now complete, and the future cost of operating this new offshore service will be included in underlying costs from FY '24. Second is the divestment of the North American turnaround business, the sale of which, as Chris mentioned, we announced at the half year results in February. It's important to say at this time that we currently do not anticipate any one-off items being excluded from underlying results in FY '24. Our statutory NPATA is $104 million, compared to $243 million in the prior corresponding period. And of course, this was impacted by the sale of the North American turnaround business. Our cash conversion was around 87% for the full year, taking into account pro forma adjustments for the sale of the North American turnaround business and prepaid software costs, both of which were noted at the half year. And I'll share more on our capital management plan at the end of this presentation. Moving to Slide 17. Both EBITA walk here on this slide exclude procurement and have been pro forma for the sale of our North American business divestment. In the top year-on-year walk, we can see the margin is predominantly driven by strong volume growth, mix and phasing. But there has been a 60 basis point increase in margin, which we expect to be sustained into FY '24, and the benefits from our cost savings initiatives are materially realized. In the bottom margin walk, a half year comparison shows that rate improvements continue to come through the backlog from the first half with the second half EBITA margin, excluding procurement, reaching 7.3%. Our first half, second half phasing in FY '23 is in line with our typical seasonality impacts. However, following the sale of the North American turnaround business, we expect the impact of our phasing to reduce by approximately half from FY '24. Let's go to Slide 18. We are constructive from here about margins reaching between 7.5% and 8% for FY '24 while EBITA grows. Our confidence here comes because of the high success rate of converting contracts factored in the pipeline into our backlog. We have deep knowledge of all factored pipeline contracts in our Salesforce system, and this means our visibility of future margins is strong. The overall pipeline isn't time bound, but typically represents about 3 to 5 years of opportunities. We currently expect almost 70% of the factored sales pipeline to be awarded this year, and this provides an indication of the pace at which opportunities are coming to market and the likely impact on our backlog. We currently expect around 60% of our backlog to generate revenue in the next 12 months, and that's up from 53% last year. And importantly, currency movements had a de minimis effect on backlog this year. From all of this, the key message is that we're seeing increased margins ahead in our backlog. Turning to Slide 19. So let's take a look at all the building blocks together for margin expansion. You can see on the left of this slide, new work is being won at higher margins, and I've just discussed that. Our win rates continue to be high, as does sole-sourced work, which is now at around 40% of our wins. Secondly, operational leverage. It's pleasing to confirm that we've completed the operational cost saving program, delivering $375 million in annualized savings as at the end of FY '23. One of the consequences of taking this cost out of the business is that it gives us operational leverage, and we believe this is also supporting margin expansion as we scale efficiently. Finally, further margin expansion will come in time from effective project delivery of lower cost -- lower risk contracts, increased use of automation and digitization and our streamlined operations. And now on to Slide 20. As we head into the final year of our 3-year strategic investment program, I'd like to share some of our achievements. This year, we spent $37 million, bringing our total investment to date to $67 million. As you can see from the table, hydrogen, battery materials and carbon capture use and storage are some of the areas where we've seen the greatest success this year. These 3 areas contributed an additional $1.8 billion to our backlog compared to FY '22, but all of these growth areas are providing a platform for accretive returns of business. We're investing inorganically and we're succeeding. We are now a go-to contractor across these growth areas. On the right, we've also provided some examples of differentiated solutions we're developing that will further contribute to increasing our natural share of these new and emerging markets. In FY '24, we forecast to invest the remaining $33 million. This will continue the scaling up of growth areas, development of differentiated technology solutions and delivering front end consulting capabilities. This strategic investment will -- initiative will complete by the end of FY '24, unless there are further accretive returns to be made, and we'll make that decision towards the end of the year. Turning finally to Slide 21. Throughout the year, we improved our capital management position. As I shared at Investor Day, our capital management is structured around funding our growth and delivering increased value to shareholders. We now have good liquidity and access to flexible competitively priced debt. Chris mentioned it already, but it's worth reminding. This year, we issued a new sustainability-linked bond for $350 million, and we renewed our syndicated bank facility on improved terms and pricing. This allowed us to extend our debt maturity to almost 4 years, and our long-term strategy includes having maturities with less concentration by year. Looking forward, our weighted average cost of debt is estimated to be between 4.3% and 4.8% in FY '24, up on FY '23, driven mainly from increases in base rates, but partially offset by consistent cash flows reducing usage of debt and better pricing on the refinanced syndicated facility. Our cash conversion ratio for the year is 87% on an underlying pro forma basis, which reflects strong cash flows, while also allowing us to invest working capital into growth. Our target conversion range remains at 85% to 95% of underlying EBITA. DSO was stable and leverage reduced significantly year-on-year from 2.5x to 2.2x as earnings improved. We've maintained stronger liquidity levels given volatile economic conditions. Finally, on active portfolio management, I've mentioned previously that it is an important component of our strategy. And the sale of the North American business area this year is simplifying our business and allowing us to focus on high-margin sustainability-related contracts. You will continue to see us sell some smaller businesses like our recent announcement of the sale of our global recruitment and contractor management company. While this was a small business, it follows the same logic of aligning our portfolio to our core capabilities, and we'll continue to tidy up our portfolio in this way. So in summary, this result demonstrates momentum against the building blocks of our strategy and we're well set up for the future. I'll now hand back to Chris.

Thanks, Tiernan. Look, before I take you through our outlook, I'd like to briefly focus on our transformation as a company followed by a market update. So if we just turn to Slide 23. Over the past 4 years, Worley has transformed the business through the deliberate actions we've taken. We've been making good progress in line with our strategy. Our GICS reclassification from energy to industrials is external acknowledgment of the transformation journey we're on and reflective of the progress we've made to diversify our business and provide sustainability solutions at scale to the energy, chemicals and resource markets. As we face into an extended upcycle in our markets, we see a future of opportunity and sustained growth. Moving on to Slide 24. We provided an update across each of our sectors at our recent Investor Day and I encourage you to look at these. Overall, we're seeing capital investment by our customers growing at a rate faster than that compared to the -- with a -- at a rate -- at a faster rate compared with the overall energy, chemicals and resource markets. In addition to this growth, new and emerging customers and major projects are generating opportunities for further upside. Moving on to Slide 25. We expect the FY '24 aggregated revenue, excluding procurement, to grow on an FY '23 pro forma basis as new and emerging customers and major projects generate further upside. We also expect procurement volumes to grow further on FY '23. We expect underlying EBITA margin, excluding the impact of procurement, to be within the range of 7.5% to 8% in FY '24. Moving on to Slide 26. Before we move to Q&A, I'd like to remind you of our key messages. We've delivered strong growth and momentum continues to build. And we continue to deliver in line with that which we said we would. We're executing our strategy and have a clear path to increasing revenue, earnings and margins in the near and medium term. And as a global leader and trusted provider of sustainability solutions, we're leveraging our differentiated position to deliver long-term value. And finally, I want to recognize what has been delivered is because of our incredible people led by the group executives of who I could not be more proud. An A team who focuses not only what they need to deliver as individuals but also on how they deliver as a team. So that concludes the presentation, and we look forward to taking Q&A.

[Operator Instructions] The first question comes from the line of Richard Johnson from Jefferies.

Chris, can I just start with your helpful comment that you made about the legacy business being up 10% in volume terms over the year. And I was wondering if you could expand on that a little bit. One of the things that's become apparent from comments made by some of your peers is that the hydrocarbon market, in particular ex U.S., is growing really quite rapidly now. And I was just wondering if that was your experience or what your thoughts are about that.

Yes. Look, we are seeing that traditional as well as sustainability-related markets are growing. But relevant to the other, while we are seeing good growth in the traditional work, we're seeing a faster growth in the sustainability-related space. And we are experiencing and benefiting from the increased investment in the traditional space, Richard.

Fantastic. And then on margins, this maybe one for Tiernan. But when I think about fiscal '24 and the impact of rate increases, is that just the full year effect of pricing that's already adjusted? Or is there more to go from the rate cycle over the next 12 to 18 months?

Yes. Look, I think with the guidance we've given you of 7.5% to 8%, clearly, there's more to go because if you build from a 6.5% in '23 and you adjust for the sale of the North American business, which was, say, 50 basis points, and then you add on the 60 basis points of margin that we say will carry into '24, then you're at the bottom of that range. So what we are saying, and we've said it -- we both said it that there's very good visibility in the backlog. And that's more relevant, obviously, for FY '24. There's very good visibility of improved pricing flowing through the aggregated revenue.

That's very helpful. And then while you're there, when I think about your longer term, medium term comment about double-digit margins, what proportion of that increase, if you can just give me a sense of the scale of the increase that will come from you hitting your 75% sustainability target? So just really what's mix in that forecast?

Well, remember, we're not differentiating in terms of margin between sustainability or traditional. All the sectors, as Chris has just outlined, are growing. So the mix is -- in '24 is likely to be a little bit higher on the sustainability side relative to '23, but not materially higher. As you said, the sustainability proportion of revenue was 41%. So it's going to still grow because, as you know, it's growing faster than the traditional, but the mix won't have a major impact.

And maybe if I can add to that, Tiernan. Richard, just our future factored sales pipeline, 77% of that is in the sustainability space. And obviously, that pipeline is going to flow into wins, going to backlog, going to the revenue. But -- so it will give you sort of the shape of how we see the future playing out.

Great. That's very helpful. And then last one, Tiernan, you did talk about procurement revenue going up again this year. I was wondering if you can give a sense of what the number might be?

Well, I think, Richard, it will probably grow at about the same rate as it grew in '23. If you think about the project mix that we have, we've got a few very big projects, one being Venture Global and the other being the direct air capture. So the procurement revenue on those is going to build on extensive procurement revenue that we had in '23, the projects which will continue into '24 as well. So yes, I'd say it will be continuing to grow about the same rate.

Next question comes from the line of Scott Ryall from Rimor Equity Research.

Chris, I was wondering if you could just give a little bit more color on your comments on Slide 24, please, around new and emerging customers. If I'm right, the vast majority of your sustainability revenue and opportunities comes from your traditional customers. So I guess you answer that first. And is there a metric that you can help us to kind of understand how much these new and emerging customers are in your numbers now and maybe in your -- or factored into your future plans, please? And where is the upside come from? Because I know it's starting from a small size, but I'm interested in how to, I guess, benchmark that going forward? And are there any particular areas within your 3 end market segments that you're seeing particular interest in some of these new and emerging customers, please?

Yes. So let's start with that one first. What's interesting is we're seeing 4 areas in particular grow rapidly: carbon capture, whether it's a direct air capture or at source; low-carbon fuels; low-carbon hydrogen; and battery materials processing. And the mix of new customers entering those are varied, but I'll tell you now, on the battery materials processing is almost entirely new customers. If we look at the Northvolt project we're doing in Sweden and others were doing around the world, I would say almost all of that market is with new customers. On the lower carbon hydrogen, carbon capture and low-carbon fuels, probably a mix, but leading toward the traditional. But if we go forward, I can see a number of -- a large proportion of our work coming from new customers. And we've got one in Holland where we're doing a bioplastics project with Avantium, and that's just an example on the chemicals side. So you've got the energy side, the battery materials; on the chemicals side, you have companies like Avantium; and on the resource side, lithium, lithium processing is something that is emerging as well with a new suite of customers. While some of our traditional exploring and investing in that space, we're seeing emerging customers. So I think going forward, we're going to see more and more emerging customers as part of our mix and, probably, to answer your question, we can probably look at it weaving into that metric into what we share going forward.

Next question comes from the line of Nathan Reilly from UBS.

[indiscernible] I understand that's a potential 20 million tonne per annum LNG project. So quite significant in terms of potential capital investment around that. Just with that being delivered on a cost reimbursable basis, how is that going to impact, I guess, value...

Nathan, you broke up there. Can you just ask the last part of your question, please, repeat that?

Yes. Sorry about that. I'll take the headset off. In terms of the -- I guess the mix, that's a very high-value project. Just wondering what will the impact be on the order book, just given you've got a high level of rate engineering, what structural revenues do.

Well, what we said is, in the current backlog that you see, there's only the limited notice to proceed work. So the next time we present the backlog, you will see the impact of that and, obviously, a 20 million tonne -- there are parts of that 20 million tonne facility, which will be contracted directly by the customer. But a large portion of that revenue will come into our backlog. And I guess -- I probably can't say what it will be now, but you'll see a significant shift in the backlog, Nathan. So what you see in the backlog currently is only a small portion of what will be in the backlog going forward.

And that point about the project more than offsetting the impact of the shutdown divestment in terms of revenue impact, comment in relation to the impact on FY '24 revenues?

Well, it will offset that. Yes.

Yes. Because that was -- Nathan, Tiernan here. That was a low-margin business, the North American turnaround business. And you might remember that the component was between $2 billion and $3 billion of backlog on that business. So right now, we don't have the full project in backlog, as Chris said. But in terms of EBITA, the margins are much higher on the Venture Global business.

And we have the -- a portion of the project in backlog and the future portion of it in the factored sales pipeline, but it's at a very high go and a very high get. So it's just -- we're just waiting for the formality of a final investment decision and that will move into backlog and the revenue and margin generated from that will, as Tiernan said, more than offset the erosion of margin coming from the sale of the North American business.

But maybe just to be really clear, the construction and fabrication and the professional services revenue mix will be similar next year even with the Venture Global contribution earnings in '24.

Next up, we have the line from Megan Kirby-Lewis from Barrenjoey.

I am just keen to touch back on the rate -- on benefits that you are seeing and just keen to get more color on the current drivers of that. And how we should be thinking about the sustainability of that dynamic beyond FY '24 would be great.

So I guess the margin improvement that we are experiencing is a function of a few things. One is obviously better rates from the customers, so improved rates from the actual customer. Then obviously, there's the operational leverage as we grow, benefiting -- also benefiting from the cost-out program. But also being able to leverage technology through our people, our people through technology and get a rate improvement -- a margin improvement there. And in terms of how sustainable is that going forward, well, as I said in my presentation, currently -- I've said before, currently, we're spending about $1 trillion -- based on the industries in which we operate spending about $1 trillion a year. But it's estimated and it's well documented from various sources that the required investment for the world to hit its net-zero commitment is $3 trillion to $4 trillion per year. And so the supply-demand dynamic that we're experiencing now that is driving an improvement in margin performance, going forward, we expect that will be sustained. The quantum of investment that is required is unlike anything that the world has experienced. And the customers can't deploy that capital. They [ just can't get it ] on the ground without a company like Worley helping them. And so we believe, going forward, there's sustained opportunity for margin growth.

That's great. And then just thinking about revenue growth for FY '24 and the relationship to that backlog growth of 14% this year, just wondering if there's anything to call out on the impact of the expected uplift in procurement revenue and how that's impacted that backlog, or it sounds like most of the uplift coming from Venture may not actually be in that number yet, that would be helpful.

Yes. The backlog currently that we've shared does not include the majority of the revenue attributed to the full project being delivered for Venture Global. It's only a small portion of it, yes.

And we do provide, Megan, some color on the market analysis that we've done in the market update in the pack, which shows that the market is still growing strongly. Probably won't be growing as strongly as it did last year, but then again, we're offsetting that with increased margins and being selective in the contracts that we take on.

The next question comes from John Purtell from Macquarie.

I hope you are well. Just had a couple of questions. Tiernan, just firstly, on cash flow. There are, obviously, some impacts there from the North American field -- services sale and also software spend. I know you called out software spend there in the first half. But if you can just flesh some of that out in terms of the impacts on cash?

Yes. It's pretty straightforward, John. There's 2 things. First of all, on the North American turnaround business, we sold that business at the end of May. In our 85% to 95% target range, we had included working capital recovery in June of '23. That cash, we did get, but it's shown in investing cash flows as part of the divestment of that business. So there's a $172 million receipt of cash in investing cash flows. That includes the working capital that we would normally get in operating cash flow. So on a pro forma basis, we've added that $43 million back into operating cash flow on a pro forma basis to compare like-for-like with the 85% to 95%. So it's just 1 month of working capital that we -- that is just shown somewhere else. We got the cash. It just isn't shown in the statutory cash flow as operating. And then as we said in February, we paid one major software renewal, which we had budgeted in our 85% to 95% to pay for 1 year, but we actually ended up paying for 3 years. So we have added back 2 years, the 2 extra years that we paid, which amounted to $25 million. So they were the 2 add-backs that get you from the raw underlying number to the 86.6%. And we think that, that's a fair allocation to compare to the 85% to 95% cash target.

And just a second question. Chris, in terms of the performance of some of the different segments there, obviously, resources was really strong. Chemicals was not as strong in relative terms. Just as far as the key drivers there for those?

Well, a lot of the chemicals work that we've done was in Europe and high gas feedstock prices certainly slowed down capital investment that caused our customers to pause and reflect on where best they could deploy the capital. So that was that. And that's what you're seeing on the chemical side. On the resources side, yes, look, strong result, and we're seeing that across the markets geographically and across our customer base. And then on the energy side, really seeing a strong push on the sustainability, especially the 4 areas I call out, John, the CCUS, low-carbon hydrogen, low-carbon fuels and battery materials. But good growth in the energy side of mix, as you would imagine, good growth on the resource. On the resource specifically, we're seeing -- obviously, copper, you've seen some consolidation in the ownership of copper assets, but you expect to see sort of -- there's got to be capacity expansion in that space, and we are working on a number of early phase studies with customers to deliver that capacity expansion in the copper. But also lithium is -- we're seeing investment there on the resources side. So the only one that I said that I would call out specifically is chemicals, which is, as I said, a lot of our chemical work was in Europe and just high feedstock really caused our customers to pause.

Next up, we have the follow-up questions from Richard Johnson from Jefferies.

Tiernan, I just wanted to ask about head count and what labor rate inflation you're seeing at the moment? And then following on from that, given how strong the backlog is and where utilization rate is, I mean should we just assume that you're going to have another very big step up in head count in '24?

Yes. Richard, as you know, we're less focused on linking head count to growth in revenue because of the dynamics of the margin improvement we're seeing, but also in the automation and digitization that we're doing. But to your point, we saw head count up 6% on a pro forma basis when you eliminate the impact of the sale of the North American turnaround business which removed about 5,800 people. We -- interestingly, our professional services staff are now 87% of our total workforce. But the fact that we can continue to bring, attract people and retain people in this environment is pretty significant. So you certainly will see us increase head count in the new year, and that's coming from all areas. To your point about inflationary effect, I think we saw a real flurry of inflationary impact in FY '23. I think that has subsided somewhat because I think what we did is we realigned the business to the real significant inflationary step-ups that occurred in '23. More recently in recent months, that seems to have plateaued. So we have forecast in '24 for normal inflationary increases in our cost base for head count. But of course, it's one of those areas that you're going to -- we're going to have to continue to watch all the way through the year.

Yes. And that would...

Yes, sorry, Richard, I would add to that. When you see the headline inflation rates, we -- the pay -- the inflationary impact on the business is not close to the headline inflation rates. We've taken -- and we've always taken, obviously, the inflation rates into consideration, but the cost increase that we experienced and, of course, being reimbursable, it's passed through to the customer. It's not close to the headline inflation levels.

Next question also comes from the line of Scott Ryall from Rimor Equity Research.

I was so flustered by being early in the queue, I forgot my second one. Tiernan, I think this is for you. I -- so on Slide 21, you got a bunch of helpful capital management plan metrics there. I guess maybe a little bit further to where John is going. But in your signing of contracts now, are you able to, I guess, tighten up on some of these metrics in terms of tightening up on days outstanding and other cash flow-related metrics with customers as opposed to just the margin? And then the second question is just you're obviously within your target range for leverage. Can we assume like if you have another year where it strongly performs like it has here? And -- I get that you have sold the business, so that's a bit different. But how low will you let leverage go? And what are your options once leverage gets to the bottom of that range, please?

Yes. Scott, on your first question, we are seeing an ability to propose better terms and conditions in the contracts that we have. First of all, we're signing lower risk contracts. So where a lot more risk was handed off to contractors say, 5 years ago, a lot of those risks have now been eliminated from contracts. On the cash side, particularly, we have seen some major customers reduce their DSOs, again, because we can, we can ask for that now because they are flushed with cash. It's not like they're [indiscernible]. So we are taking those opportunities when they arise. And particularly on larger contracts, we are looking to try and make them as cash needful as possible because there are opportunities for certain contracts to forecast cash flow in advance so that we actually make up the cash that we outlay in a month almost immediately. So yes, there are really good opportunities to do that. And we're -- I think the focus on the 85% to 95% has changed behaviors across the organization and that's what Chris and I wanted to do. In terms of the leverage, we said we reset the leverage target between 2x and 2.5x in February. But we said we wanted to trend towards 2x. It is possible with the level of growth that's ahead of us that the leverage will go below that. I think we'll be underutilizing debt given the WACD that I talked about, if it goes much below 2x, given the cost of equity. But nonetheless, it will be a very nice position to be in, to be in the area of having one handle on the leverage number. And I think the purpose of that slide is to show you the opportunities that we have ahead of us. And it's all linked, right? We talked about ending the organic investment schedule this year. That is one area. If we think that there are returns more accretive than paying down debt, then we know it's another area that we can continue to invest in. We can also continue to pay down debt. Perhaps there are some inorganic opportunities albeit multiples remain high. And then, of course, the final thing is that while we're growing back into our dividend payout ratio, there's also an opportunity, if we don't have accretive returns, to increase our dividend. So we've got lots of options, and I think that slide is designed to show you as that emerges, the decisions we're making around that issue.

Now I would like to take the last question from Niraj-Samip Shah from Goldman Sachs.

Just a quick one for me following up on Richard's question. But given staff utilization has sustained north of 90% for a while now, your comments around digitization and automation, that target of 87-odd percent, is that outdated? Is it a scope for that to sort of increase?

I think that's a fair question. And we'll -- it's interesting because it's been a historical metric, but we're really facing into a market that is unprecedented and it's probably worth looking -- at revisiting that. So let me take that question onboard, yes.

I'd now like to turn the call back to Chris for closing remarks.

Look, I just want to thank everyone for their interest in joining today. Certainly, we have a number of meetings over the next few days and next week. [indiscernible], through Verena, if there's any further questions to certainly come back to us and we'll support answering those as best we can. But I just want to thank everyone for the support. And again, I want to recognize the Worley workforce and the leadership team that have delivered the results that we've shared today. So I'll end there. Thank you.

That does conclude today's conference call. Thank you for your participation. You may now disconnect your lines.